Ilex Investments LP, et al. v. Bitran, et al. (Lawyers Weekly No. 12-178-16)

This is an action to recover investment losses of $ 1.5 million. The plaintiffs, Ilex Investments, LP, Crawford Living Trust, and George Crawford, filed suit against the defendants, Gabriel Bitran (Gabriel), Marco Bitran (Marco), Devorah Bitran, GMB Global Multi-Strategy, LP (GMB Global), GMB Global Multi-Strategy Offshore, Ltd (GMB Offshore), and GMB Global Master Fund, LP (GMB Master), asserting claims of fraudulent misrepresentation and fraudulent concealment (Count I), negligent misrepresentation (Count II), and fraud in the inducement (Count III). Plaintiffs now move for summary judgment on all counts asserted against defendants GMB Global, GMB Offshore, and GMB Master. Drawing all reasonable inferences in favor of the defendants, this Court concludes that summary judgment in plaintiffs’ favor is not appropriate.
The record before this Court reveals the following facts, viewed in the light most favorable to the defendants. 1 In April and May of 2008, the plaintiffs invested $ 1.5 million in two investment funds, GMB Global and GMB Offshore, which Gabriel and Marco founded, organized, and managed. Gabriel was a professor at and former dean of the Massachusetts Institute of Technology. Marco was formerly an investment manager at Wellington Capital Management, an investment management company with billions of dollars in assets. The funds claimed to use models, developed through Gabriel’s academic research, in order to determine what investments to make and sought to optimize portfolios of stocks and other assets – also based on Gabriel’s models — in order to estimate price distributions in the stock market. The funds marketed themselves, in both written materials and through the Bitrans’ statements, by touting a performance track record from January 1998 to August 2006 showing a 16.2 percent annualized return based on actual investments that were made using these models. Gabriel represented himself as a manager of the funds.
Plaintiff Crawford is a graduate of Harvard Law School and a corporate attorney who has practiced for 34 years at the international law firm of Jones Day. He is also an experienced investor: from 1998 to 2000, Crawford managed his own hedge fund with $ 40 million in assets. Crawford spoke to Gabriel and Marco for two to three hours before deciding to invest in the funds. Crawford discussed his investment in the funds with Richard Berner, who was also a sophisticated investor. The parties dispute whether Crawford received a written private placement memorandum or PPM prior to investing with the funds.
1 The Defendants moved to strike portions of that record that relate to criminal proceedings against the Bitrans as well as their sworn affidavit. For the reasons set forth in the opposition, that motion is denied.
The defendants provided Crawford with information documenting the track record of the funds’ performance over the previous ten years, purportedly based on actual investments made through accounts held by the Bitrans and their friends and family. Defendants represented that these investments were based on Gabriel’s proprietary models and that they achieved positive returns of 16 to 23 percent each year since 1998. In reality, the funds were not invested in accordance with Gabriel’s proprietary models: instead, they were invested in funds of funds or other investment vehicles, including funds invested with Bernard L. Madoff. Rather than realizing gains, the funds had suffered significant losses.
In the summer of 2008, Crawford realized that the funds were not invested as the defendants represented. The plaintiffs attempted to withdraw their investments but defendants refused to redeem them. Gabriel and Marco subsequently pleaded guilty to federal charges of securities fraud, and are both serving prison sentences. They have settled the claims asserted against them. As part of that settlement, Gabriel and Marco agreed to submit an affidavit, which is part of the summary judgment record, in which they admit that they made certain false representations to plaintiffs. 2 Specifically, they told Crawford that the historical track record for the funds was based on actual trades when in fact it was based on hypothetical back-tested simulations. They also told Crawford that the investments were selected by Gabriel using his proprietary model when in fact the investments were made using outside managers.
The state common law claims that are the subject of this motion allege fraud and negligent misrepresentation. Although there can be little dispute that representations were made and that
2 Defendants have moved to strike this affidavit, claiming that these statements are inadmissible. This Court disagrees. Clearly, the Bitrans could testify to these facts if called as witnesses at trial. If they are not available to testify, then their statements may still be admissible either as a declaration against penal interest or as an admission of a party opponent.
these were deliberate, plaintiffs must additionally prove that they relied on those representations and that such reliance was reasonable. See Collins v. Huculak, 57 Mass. App. Ct. 387, 392 (2003) (discussing elements of fraud); Fox v. F & J Gattozzi Corp., 41 Mass. App. Ct. 581, 587-588 (1996) (discussing elements of negligent misrepresentation). What constitutes reasonable reliance is a fact-driven inquiry requiring the consideration of multiple factors, no one of which is determinative. Kennedy v. Josephthal & Co., Inc., 814 F.2d 798, 804 (1st Cir. 1987). They include:
(1) The sophistication and expertise of the plaintiff in financial and securities matters; (2) the existence of long standing business or personal relationships; (3) access to the relevant information; (4) the existence of a fiduciary relationship; (5) concealment of the fraud; (6) the opportunity to detect the fraud; (7) whether the plaintiff initiated the stock transaction or sought to expedite the transaction; and (8) the generality or specificity of the misrepresentations.
Id., quoting Zobrist v. Coal-X Inc., 708 F.2d 1511, 1516-1517 (10th Cir. 1983). Precisely because this element depends on the facts of the particular case (and the degree to which the fact finder concludes that witnesses testifying to those facts are credible), summary judgment is almost never granted and if so, it is only for the party who does not bear the burden of proof. Indeed, this Court is aware of no Massachusetts case where summary judgment has been granted for a plaintiff on a common law misrepresentation claim. Here, there is no reason to diverge from that precedent, particularly since this Court must draw all reasonable inferences in favor of the defendants.
The defendants highlight the following facts which could support an inference that Crawford did not reasonably rely on the Bitrans’ representations or which support the conclusion that there is at the very least material fact disputes. Crawford was a sophisticated and experienced investor who had himself managed assets of $ 40 million. A plaintiff claiming justifiable reliance
cannot recover “if he blindly relies upon a misrepresentation, the falsity of which would be patent to him if he utilized his opportunity to make a cursory examination or investigation.” Collins v. Huculak, 57 Mass. App. Ct.387, 392 (2003), quoting Restatement (Second) of Torts 541, comment a (1977). Here, Crawford’s due diligence was limited to a “handful of telephone calls with the Bitrans” and his conversations with Berner about the funds. Finally, there is a fact dispute as to what Crawford reviewed prior to investing in the funds. Specifically, defendants contend that a PPM distributed to investors disclosed the terms and risks of the investments; if Crawford had reviewed this, then there is some additional basis to question the reasonableness of his reliance.
Certainly, there are those rare cases in which a court has determined that a plaintiff’s reliance was unreasonable as a matter of law, such judgment for the defendant was warranted. See e.g. Sands v. Ridefilm Corp., 212 F.3d 657, 665 (1st Cir. 2000) (summary judgment for defendant affirmed where plaintiff’s reliance was unreasonable); Triforo v. New York Life Ins. Co., 845 F.2d 30, 33 (1st Cir. 1988) (same). 3 Significantly, some of these cases concern a motion made by a defendant who loses at trial and seeks a judgment notwithstanding the verdict or where there is appellate review of the lower court’s finding for the plaintiff after trial. See e.g. Kuwaiti Danish Computer Co. v. Digital Equip. Corp., 438 Mass. 459, 468 (2003); (motion for judgment n.o.v. should have been allowed); see also Mahaney v. John Hancock Mut. Life Ins. Co., 6 Mass. App. Ct. 919, 920 (1978) (concluding that trial court erred in finding that plaintiff’s reliance was reasonable). Where the plaintiff bears the burden of proving that his reliance was reasonable, it is hard to envision circumstances which would support a summary disposition. That is, if a rational jury could conclude that the plaintiff’s reliance was unreasonable, then this case must be
3 This Court notes that these cases were both decided by federal courts, which seem to be more inclined than state courts to dispose of cases on summary judgment.
decided by a jury. Based on the summary judgment record, this Court reaches that conclusion here.
For all the foregoing reasons and for other reasons articulated in the defendants’ opposition, the plaintiffs’ Motion for Summary Judgment is DENIED.
Janet L. Sanders
Justice of the Superior Court
Dated: December 22, 2016

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